Quantitative Finance > Trading and Market Microstructure

Title:
Intraday Patterns in the Cross-section of Stock Returns

Abstract: Motivated by the literature on investment flows and optimal trading, we
examine intraday predictability in the cross-section of stock returns. We find
a striking pattern of return continuation at half-hour intervals that are exact
multiples of a trading day, and this effect lasts for at least 40 trading days.
Volume, order imbalance, volatility, and bid-ask spreads exhibit similar
patterns, but do not explain the return patterns. We also show that short-term
return reversal is driven by temporary liquidity imbalances lasting less than
an hour and bid-ask bounce. Timing trades can reduce execution costs by the
equivalent of the effective spread.